WASHINGTON (Reuters) - U.S. employers stepped up hiring in February and the jobless rate fell to its lowest level since the spring before President Barack Obama took office, which could put pressure on the Federal Reserve to raise interest rates in June.
Nonfarm payrolls increased 295,000 last month after rising 239,000 in January, the Labor Department said on Friday. The broad job gains came despite disruptive winter weather that took hold across large parts of the country in mid-February. The unemployment rate dropped two-tenths of a percentage point to 5.5 percent, the lowest since May 2008, slipping into territory that some Fed officials consider consistent with full employment."The labor market is on a roll. This should ease fears at the Fed that the global downturn and sharp drop in oil prices are materially disrupting the U.S. economic outlook, and keep the Fed firmly on course for a June lift-off," said Scott Anderson, chief economist at Bank of the West in San Francisco.U.S. stocks and government bond prices fell as traders brought forward bets on when the Fed would raise rates. However, futures markets continued to point to a September lift-off.The dollar rallied to a fresh 11-1/2-year high against the euro, which has been under pressure since the European Central Bank announced a bond-buying program to lower euro zone interest rates.Last month's decline in the unemployment rate, however, largely reflected people dropping out of the labor force. But economists, who had expected payrolls to rise only 240,000 and the unemployment rate to fall to 5.6 percent, noted that other indicators monitored by the U.S. central bank showed a rapidly tightening labor market. February marked the 12th straight month that employment gains have been above 200,000, the longest such run since 1994.Average hourly earnings rose by three cents last month, leaving the year-on-year gain at 2 percent. That compared to a 2.2 percent rise seen in the 12 months through January. While economists acknowledged that persistently sluggish wage growth and very benign inflation argued against the Fed pulling the trigger in June, they said tightening conditions in the labor market could force the central bank's hand."Even if the Fed decides to delay the lift-off in policy, it is hard to see the downward trend in unemployment not continuing," said Jeremy Lawson, chief economist at Standard Life Investments in Edinburgh, Scotland. "Will the Fed really want short-term interest rates to be negative when the unemployment rate falls below 5 percent late this year or early next year?" WAGE VIGIL Fed officials are monitoring pay data closely to help determine when enough pressure has built in the jobs market to merit higher borrowing costs to keep the economy from overheating.The central bank has kept its key overnight lending rate near zero since December 2008. Wage growth could get a lift from an announcement last month by Wal-Mart